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Interest Rate Response for Small and Midsize Companies

Businesses that don’t have the resources to run scenario analyses on prospective interest rate outcomes shouldn’t overlook these smart cash management strategies.

By Jeremy Parker | January 03, 2019 at 09:55 AM

The Federal Reserve raised interest rates four times in 2018, and Fed officials are anticipating continuing increases this year. This marks the first period of rising rates in over a decade. It’s also an opportune moment for companies to adjust cash management strategies accordingly.

Businesses with the analytics resources to run market simulations can use scenario planning to anticipate—and prepare their response to—the most likely interest rate outcomes. However, many businesses lack the resources to effectively complete such an analysis. Their analytics teams may be lean (or non-existent), but these companies will be affected by rising rates at least as much as the big guys.

Small and midsize businesses might be tempted to simply move their excess cash into interest-bearing accounts with rates of return that are rising. This approach will be especially appealing for organizations whose sales are on the upswing. But maximizing interest earned on cash is not the only priority a business should consider.

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